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PCP finance - what's the catch?

edited 30 November -1 at 1:00AM in Loans
21 replies 2.6K views
drc90drc90 Forumite
36 posts
edited 30 November -1 at 1:00AM in Loans
Hi all.

I'm new to PCP financing so don't fully understand it.

There's a car that I can buy from Ford for £19,750 cash outright. However, the same car I can also buy on finance:

* £2,000 customer deposit
* £2,250 deposit allowance
* £209.16 x 38 monthly payments
* £7,552 optional final payment
* 0% APR

Assuming the deposit allowance is paid for by Ford and not me, and assuming my maths is correct, this means if I buy the car at the end of the term, my total payments will be £17,500.08, which is considerably less than the £19,750 list price.

Can someone tell me what I'm missing? I know a lot of people say "0% finance is too good to be true", so what's the catch?

Thanks
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Replies

  • zx81zx81 Forumite
    27.7K posts
    Tenth Anniversary 10,000 Posts Photogenic Name Dropper
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    There isn't one for you.

    For the dealer, the risk is that you will pay off the finance immediately meaning they lose their commission.

    But that's a risk they take, rather than you.
  • DrEskimoDrEskimo Forumite
    1.1K posts
    1,000 Posts Second Anniversary Name Dropper
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    drc90 wrote: »
    Hi all.

    I'm new to PCP financing so don't fully understand it.

    There's a car that I can buy from Ford for £19,750 cash outright. However, the same car I can also buy on finance:

    * £2,000 customer deposit
    * £2,250 deposit allowance
    * £209.16 x 38 monthly payments
    * £7,552 optional final payment
    * 0% APR

    Assuming the deposit allowance is paid for by Ford and not me, and assuming my maths is correct, this means if I buy the car at the end of the term, my total payments will be £17,500.08, which is considerably less than the £19,750 list price.

    Can someone tell me what I'm missing? I know a lot of people say "0% finance is too good to be true", so what's the catch?

    Thanks

    Have you checked what discounts are available from online brokers, like CarWow, Coast2Coast, OrangeWheels, Broadspeed, etc.?

    Sometimes the 0% offer cannot be used in conjunction with discounts, so you end up paying more despite 0% finance. But this isn't always the case. Sometimes you can get the higher discount (on top of the deposit contribution) and 0% finance. Typically people will got for the PCP to get the finance contributions, but then settle within 14days to not pay interest, but at 0% there is little need.

    Of course the most obvious question is how much can you save by going used....? What is the value of brand new over a used model, and is it worth the price difference? If the answer is just the warranty, these can typically be extended by the dealership at a cost much less than the amount saved at list price.
  • drc90drc90 Forumite
    36 posts
    zx81 wrote: »
    There isn't one for you.

    For the dealer, the risk is that you will pay off the finance immediately meaning they lose their commission.

    But that's a risk they take, rather than you.

    Thanks. The thing I'm struggling to get my head around is why they're offering a £2k+ deposit contribution, as I thought this was designed to entice you into a finance deal that ends up being more expensive; but at 0% finance, what benefit are they getting?
  • Nebulous2Nebulous2 Forumite
    2.9K posts
    Sixth Anniversary 1,000 Posts Name Dropper
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    drc90 wrote: »
    Thanks. The thing I'm struggling to get my head around is why they're offering a £2k+ deposit contribution, as I thought this was designed to entice you into a finance deal that ends up being more expensive; but at 0% finance, what benefit are they getting?

    You would need to know more than you will be allowed to about their internal finances to make sense of it. Just be grateful if the figures add up for you.

    Some thoughts.

    Most new cars are on finance nowadays. Manufacturers like it, partly I think because more people return to them at the end of their deal.
    If sales are slow 0% is an alternative to giving discounts. It makes for good advertising. Many people just grab it instead of looking for the catch as you're doing.
    Matching production with sales is difficult, sometimes it gets out of kilter and they need to shift cars. In the past they sometimes gave really good offers on motability cars to do that.
  • foxy-stoatfoxy-stoat Forumite
    6.2K posts
    1,000 Posts Fourth Anniversary Name Dropper
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    The dealer hopes you have no chance of paying the £7550, only hand the car back and pay another deposit for a new car and start the process all over again. That way they can rent out another new car and have a secondhand car to sell in a few years time.
  • BoGoFBoGoF Forumite
    6.3K posts
    Part of the Furniture 1,000 Posts
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    Is this a brand new car, i.e. you will be the first registered keeper? Or is it pre-registered?
  • tacpot12tacpot12 Forumite
    3.4K posts
    1,000 Posts Fourth Anniversary
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    If they will sell you it for £17,500 on finance, there is no way you should be paying £19,500 for it cash. The dealer is trying it on. Tell them you will pay £17,000 cash - take it or leave it.
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always check official information sources before relying on my posts.
  • aphill24aphill24 Forumite
    120 posts
    Ninth Anniversary 10 Posts Combo Breaker
    If you want the car, take the finance offered and pay it off within the first 14 days. You will be getting it at the discounted price. Make sure there is nothing in the contract that penalises you from doing this but as an employee I know lots who do it and there is no catch.
    Personally I buy 2nd hand as the value plummets on new ford cars in the first 3 years. You get much more value buying a 2nd hand Audi from 2 years old in my opinion.
  • meer53meer53 Forumite
    10.2K posts
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    You're missing the fact that you're paying over the odds whether you pay cash or PCP. If you have cash, buy a second hand nearly new car and save yourself a shed load of money. They're obviously ripping you off either way if they'll accept £19k cash but £17k on finance !
  • SuperHungSuperHung Forumite
    8 posts
    First Post First Anniversary
    MoneySaving Newbie
    The catch is that you are paying for the car depreciation, you lose 20% just by driving your new card out of the showroom.
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